Off The Wire

U.S. Treasuries investors most polarized in seven weeks: survey

NEW YORK (Reuters) - U.S. Treasury investors are the most polarized in seven weeks ahead of this week’s policy meetings of the Federal Reserve and the European Central Bank, a J.P. Morgan survey released on Tuesday showed.

The share of investors who said on Monday they are neutral, or holding longer-dated U.S. Treasuries matching their portfolio benchmarks, fell to 43 percent, the lowest since April 23. Last week, the share of neutral investors was 51 percent, according to the bank’s latest Treasury client survey.

Bond investors widely expect the U.S. central bank to raise key overnight borrowing costs by a quarter point to 1.75-2.00 percent on Wednesday following a two-day meeting. They await whether the Fed policymakers will raise rates once or twice in the second half of 2018.

Meanwhile, they are looking for signs on whether the ECB is prepared to begin tapering its 2.55 trillion euro bond purchase program in September in the wake of recent market turbulence tied to political turmoil in Italy.

Italy’s anti-establishment government has spurred concerns whether euro zone’s third-biggest economy is committed to the rules to remain in the economic bloc. Those concerns have roiled financial markets, causing U.S. bond yields to whipsaw over the past several weeks.

Early Tuesday, the yield on benchmark 10-year Treasury notes US10YT=RR was 2.981 percent, up over 2 basis points from late on Monday.

On May 29, the 10-year yield dropped to 2.759 percent, a seven-week low, as fears of Italy leaving the euro zone triggered a safe-haven stampede into Treasuries.

Since late May, reduced worries about Italy and growing bond supply including $68 billion in coupon-bearing Treasury issues this week have lifted bond yields.

On Sunday, Italy’s new economy minister, Giovanni Tria, said his government would stay in the euro and plans to target lower debt levels.

Investors were evenly split in their move from their neutral stance in the latest week.

The share of investors who said they were long or holding more longer-dated Treasuries than their benchmarks grew by 4 percentage points to 19 percent, while those who said they were short of holding fewer longer-dated bonds increased 4 points to 38 percent, the J.P. Morgan survey showed.

Reporting by Richard Leong; Editing by Steve Orlofsky

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